Mumbai, Jan. 30: The entry of Holcim into Gujarat Ambuja Cements Ltd (GACL) could well spark the next phase of consolidation in India’s cement industry, the second largest in the world, with major players like Lafarge SA and Italcementi likely to look for ways to consolidate their presence in the country by gobbling up smaller entities.

Simultaneously, it may lead to the AV Birla group consolidating its cement operations through the merger of UltraTech Cement and Grasim Industries. While Kumar Mangalam Birla has around 31 million tonnes of cement capacity under his belt, such an amalgamation will give the group a much stronger balancesheet to take on the might of the ACC and GACL combine.

The M&A process in the fragmented domestic cement industry has largely seen small buyouts though big-ticket deals like Kumar Mangalam Birla buying out Larsen & Toubro's cement capacity or Holcim acquiring a stakeholding in ACC have been the key highlights in recent times.

With majors like Lafarge missing out on such big-ticket acquisitions, industry experts now feel that they will stalk other players in order to catch up with Holcim. With the Indian economy growing at a robust pace and demand for cement from the housing and construction sectors expected to hit double digits, these players would not like to miss the opportunity presented in such a scenario.

Investors punted on cement stocks today after the Holcim-GACL deal was announced. Strong buying interest emerged in Indian Cement, for instance, on the hope that the big foreign cement players will be eyeing them.

Analysts say the Holcim-Gujarat Ambuja deal will also have an upward impact on valuations in the domestic cement sector.

“The valuation emanating from the Holcim-Ambuja deal will now serve as a new benchmark for the sector. Already, valuations in the industry have gone up from around $80 per tonne to over $200 per tonne now,” an analyst with a foreign brokerage said.

While many feel that Holcim has paid a substantial premium to acquire a stake in GACL, Rajan Kumar, cement analyst at Networth Stock Broking, differs. “This is the best deal they could have got for an entry into the company. GACL is not only the third largest cement player in the country but also the most cost-efficient producer of the commodity. Therefore, Holcim would not have got the stake at anything less,” he told The Telegraph.